FROM VOLUME TO VALUE: Addressing the Key Challenges in Transforming Health Care Payment and Delivery Systems Mini-Summit IV: Payment Reform Fourth National Pay for Performance Summit March 10, 2009

2 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Building Consensus Across Regions Toward Implementation 2007 Summit What New Payment Systems Should Look Like Solutions to Barriers to Implementing Reforms 2009 Specific Pathways to Reform 2008 Summit

3 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform The Health Care Cost Equation VARIABLES CONTRIBUTING TO THE COST OF CARE Cost Person = Cost Process x # Processes Service Episode of Care xx # Episodes of Care Condition x # Conditions Person Prices of Providers, Devices, Drugs? #/Type Services CABG vs. Stent vs. Medical Mgmt? Treatment Protocol, Type of Stent? How many heart attacks do they have? How many people have heart disease? Cost of Treating Heart Disease

4 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Fee for Service System Result in Undesirable Effects… Cost Person = Cost Process x # Processes Service #/Type Services Episode of Care xx # Episodes of Care Condition x # Conditions Person - FEE FOR SERVICE - VARIABLES FOR WHICH THE PROVIDER IS AT RISK UNDER ALTERNATIVE PAYMENT SYSTEMS No Limit on # of Services Not All Services Paid For Not All Processes Provided

5 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform …Which Payers Try to Solve By Layering on Controls & Incentives Cost Person = Cost Process x # Processes Service #/Type Services Episode of Care xx # Episodes of Care Condition x # Conditions Person - FEE FOR SERVICE - VARIABLES FOR WHICH THE PROVIDER IS AT RISK UNDER ALTERNATIVE PAYMENT SYSTEMS No Limit on # of Services Not All Services Paid For Not All Processes Provided Utilization Review Pay for Perfor- mance

6 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Cost Person = Cost Process x # Processes Service #/Type Services Episode of Care xx # Episodes of Care Condition x # Conditions Person Traditional Capitation “Solves” the Problems of Fee for Service… - FEE FOR SERVICE TRADITIONAL CAPITATION VARIABLES FOR WHICH THE PROVIDER IS AT RISK UNDER ALTERNATIVE PAYMENT SYSTEMS Services Limited by Total $ Any Service Included Incentive For Key Processes

7 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform …But Goes too Far in the Opposite Direction Cost Person = Cost Process x # Processes Service #/Type Services Episode of Care xx # Episodes of Care Condition x # Conditions Person - FEE FOR SERVICE - VARIABLES FOR WHICH THE PROVIDER IS AT RISK UNDER ALTERNATIVE PAYMENT SYSTEMS Provider At Risk for Sicker Patients Services Limited by Total $ Any Service Included Incentive For Key Processes TRADITIONAL CAPITATION INSURANCE RISK PERFORMANCE RISK

8 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Cost Person = Cost Process x # Processes Service #/Type Services Episode of Care xx # Episodes of Care Condition x # Conditions Person Middle Ground #1: Episode of Care Payment - FEE FOR SERVICE - VARIABLES FOR WHICH THE PROVIDER IS AT RISK UNDER ALTERNATIVE PAYMENT SYSTEMS -- EPISODE OF CARE PAYMENT -- INSURANCE RISK PERFORMANCE RISK For Acute Conditions & Chronic Conditions:

9 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Middle Ground #2: Condition-Adjusted Capitation VARIABLES FOR WHICH THE PROVIDER IS AT RISK UNDER ALTERNATIVE PAYMENT SYSTEMS Cost Person = Cost Process x # Processes Service #/Type Services Episode of Care xx # Episodes of Care Condition x # Conditions Person - FEE FOR SERVICE - -- EPISODE OF CARE PAYMENT CONDITION-ADJUSTED CAPITATION OR RISK-ADJUSTED GLOBAL FEES For Acute Conditions & Chronic Conditions: For Comprehensive & & Preventive Care: INSURANCE RISK PERFORMANCE RISK

10 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform There Is Broad Agreement About What the Goal Should Be Fee for Service Severity-Adjusted Episode-Based or Comprehensive Payment Payment System IDEAL TODAY Volume-Driven Fragmented Care Value-Driven Coordinated Care

11 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform We Can’t Get There All At Once: Transitional Systems Needed Fee for Service Severity-Adjusted Episode-Based or Comprehensive Payment Payment System Volume-Driven Fragmented Care TODAY IDEAL Value-Driven Coordinated Care Enhanced FFS with Outcome Incentives TRANSITION Build on existing billing & payment systems Enable providers to develop new methods of working together & managing care Achieve savings for payers without bankrupting providers

12 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Example: Changing the Payment Structure for Medical Homes

13 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Changing The Payment Structure: Long-Run Goal “Severity- Adjusted Comprehensive Fees” or “Episode- Based Payment”

14 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Changing the Payment Structure: Transitional Steps

15 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Who Should Be Eligible for Medical Home Payments? Current Approach: Require MD Practices to Meet NCQA Standards for Medical Homes –Insufficient evidence to demonstrate that primary care practices meeting NCQA standards will deliver better value than those which do not Recommended Approach: Focus Should Be on Outcomes –e.g., reducing preventable hospitalizations, improving patient satisfaction –Resist unnecessary barriers to entry, particular for smaller practices –Use NCQA standards as guidance to providers on how to organize Research/Demonstrations Needed Before Standards Set –Some pilot projects requiring NCQA standards would be desirable –But pilot projects with different standards and outcome-driven requirements are needed to determine what actually makes a difference

16 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Example: Payment For Major Acute Care

17 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Recommended System: Bundled Payment to All Providers

18 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Transitioning to Bundled Payment Create Case Rates for All Providers: Pay non-surgeon physicians in hospitals on a case rate basis for patients in major DRGs. Expect Warranties from Each Provider: Establish financial rewards for hospitals and physicians that reduce hospital readmissions (or penalties for those that do not). Give preference to providers that provide warranties on their care. Increase Use of Gain-Sharing Between Providers: Remove restrictions on gain-sharing between hospitals and physicians for efforts to improve efficiencies in hospital care. Create “Virtual” Bundling Among Providers: Provide rewards and/or penalties to all providers involved in an episode of care, based on the total cost of the episode relative to regional or national averages. Bundle Case Rates for Providers into True Episode Payments: –Bundle hospital and surgeon payments for surgical procedures –Bundle hospital and post-acute care payments for major DRGs

19 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Current Systems Don’t Encourage Use of Lower Cost Providers Lowest-Value Providers Highest-Value Providers Price/Cost of Service Total Provider Price/ Cost Consumer-Selected Provider Difference in Price Assume All Providers Have Equivalent Quality

20 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Current Systems Insulate Consumers from Price Differences Lowest-Value Provider Highest-Value Provider Consumer Share Consumer Share 2 Consumer-Selected Provider Co-Pay or Co-Insurance Difference in Price Insurance Share Consumer Share Consumer Share 2 Total Price Insurance Share Difference in Price Price/Cost of Service

21 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Solution: Have Consumers Pay All or Part of the “Last Dollar” Lowest-Value Provider Highest-Value Provider Insurance Share Consumer Share 1 Consumer Share 2 Consumer-Selected Provider Share of Difference in Cost From Highest Value Provider Co-Pay or Co-Insurance Difference in Price Insurance Share Consumer Share 1 Insurance Share Consumer Share 1 Consumer Share 2 Total Price Price/Cost of Service

22 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Encouraging Use of Higher-Value Providers and Services Small Number of Tiers: Tier providers into a small number of tiers based on cost and quality (for easier consumer choice) Significant Consumer Share for Higher Cost: Charge consumers a significant share of the difference in cost of providers in lower-value tiers; Charge consumers more for using lower-value services Consumer Education: Educate consumers how to use information

23 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform A Key Challenge: Gaining Support from a Critical Mass of Payers Payer Provider Payer Patient Provider is only compensated for changed practices for the subset of patients covered by participating payers Better Payment System Current Payment System

24 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Regional Collaboratives Needed to Support Payment Reform Alignment of Payment Structures –Due to anti-trust restrictions, there is a need for a neutral body to provide a mechanism for developing a payment structure acceptable to multiple payers Quality and Cost Reporting –Methodologies for quality measurement should be consistent across payers and ideally consistent across the country for national payers Community/Patient Education –Educate the community about the urgent need for change –Involve consumers in planning payment changes in meaningful ways

25 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Transitional Payment Systems Important and Feasible Fee for Service Severity-Adjusted Episode-Based or Comprehensive Payment Payment System Volume-Driven Fragmented Care TODAY IDEAL Value-Driven Coordinated Care Enhanced FFS with Outcome Incentives TRANSITION

26 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Transition for Delivery System As Well As Payment: Co-Evolution Fee for Service Severity-Adjusted Episode-Based or Comprehensive Payment Payment System Volume-Driven Fragmented Care TODAY Enhanced FFS with Outcome Incentives Value-Driven Coordinated Care TRANSITION IDEAL “Supported” Accountable Care Systems Delivery System Co-Evolution of Organization & Payment

27 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Payment Reform Without Delivery Reform May Not Be Successful Fee for Service Severity-Adjusted Episode-Based or Comprehensive Payment Payment System Volume-Driven Fragmented Care TODAY Enhanced FFS with Outcome Incentives Value-Driven Coordinated Care IDEAL “Supported” Accountable Care Systems Delivery System Failure Due to Lack of Organizational Capacity to Manage Value-Driven Payment

28 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Encouraging Providers to Support Changes Hospitals and Specialty Providers –Provide technical assistance in eliminating waste and increasing efficiency, to reduce costs as well as revenues –Payers should reduce administrative burdens on providers (e.g., inconsistent reporting requirements) –Payers and providers should collaboratively plan for the transition (make changes with providers, not to them) Small Physician Practices –Provide technical assistance in managing care and finances under new payment models –Provide help in forming organizational structures to facilitate quality improvement, share resources, and accept accountability for outcomes/costs

29 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform Coordinated Regional Approach to Payment & Delivery Reform Regional Healthcare Collaborative Consumer/ Community Education Alignment of Multiple Payers Technical Assistance to Providers Engagement of Purchasers Quality Reporting Cost/Price Reporting Employee Support for Purchaser Action Purchaser Demand for Payer Change Provider Structure & Care Redesign in Response to Payment Incentives Provider Action to Improve Value Provider Submission of Quality/Price Data Consumer Response to Value Data & Support for Changes

30 © 2008, 2009 Network for Regional Healthcare Improvement, Center for Healthcare Quality and Payment Reform It’s Not Just a Theory – It’s Being Done Patient Choice Health Care (Ann Robinow) DIAMOND Initiative (Gary Oftedahl) PROMETHEUS Payment (François de Brantes) Aligning Multiple Payers EXAMPLESPAYMENT MODELS Risk-Adjusted Global Fees Building on Existing FFS System Episode-Based Payment (Acute & Chronic) Involving Small & Large Providers Transitional Medical Home Payment Tiering of Providers Value Incentives for Consumers CHALLENGES

For More Information: Harold D. Miller President & CEO, Network for Regional Healthcare Improvement and Executive Director, Center for Healthcare Quality and Payment Reform (412)